The International Monetary Fund has raised its global growth forecasts for 2025 and 2026 slightly, citing stronger-than-expected purchases in advance of an August 1 jump in tariffs imposed by the United States and a drop in the effective US tariff rate to 17.3 percent from 24.4 percent.
In its forecast on Tuesday, it warned, however, that the global economy faced major risks including a potential rebound in tariff rates, geopolitical tensions and larger fiscal deficits that could drive up interest rates and tighten global financial conditions.
“The world economy is still hurting, and it’s going to continue hurting with tariffs at that level, even though it’s not as bad as it could have been,” said Pierre-Olivier Gourinchas, IMF chief economist.
In an update to its World Economic Outlook from April, the IMF raised its global growth forecast by 0.2 percentage point to 3 percent for 2025 and by 0.1 percentage point to 3.1 percent for 2026. However, that is still below the 3.3 percent growth it had projected for both years in January and the pre-pandemic historical average of 3.7 percent.
It said global headline inflation was expected to fall to 4.2 percent in 2025 and 3.6 percent in 2026, but noted that inflation would likely remain above target in the US as tariffs passed through to consumers in the second half of the year.
The US effective tariff rate – measured by import duty revenue as a proportion of goods imports – has dropped since April, but remains far higher than its estimated level of 2.5 percent in early January. The corresponding tariff rate for the rest of the world is 3.5 percent, compared with 4.1 percent in April, the IMF said.
US President Donald Trump has upended global trade by imposing a universal tariff of 10 percent on nearly all countries since April and threatening even higher duties to kick in on Friday. Far higher tit-for-tat tariffs imposed by the US and China were put on hold until August 12, with talks in Stockholm this week potentially leading to a further extension.
The US has also announced steep duties ranging from 25 percent to 50 percent on automobiles, steel and other metals, with higher duties soon to be announced on pharmaceuticals, lumber, and semiconductor chips.
Such future tariff increases are not reflected in the IMF numbers, and could raise effective tariff rates further, creating bottlenecks and amplifying the effect of higher tariffs, the IMF said.
Shifting tariffs
Gourinchas said the IMF was evaluating new 15-percent tariff deals reached by the US with the European Union and Japan over the past week, which came too late to factor into the July forecast, but said the tariff rates were similar to the 17.3 percent rate underlying the IMF’s forecast.
“Right now, we are not seeing a major change compared to the effective tariff rate that the US is imposing on other countries,” he said, adding it was not yet clear if these agreements would last.
“We’ll have to see whether these deals are sticking, whether they’re unravelled, whether they’re followed by other changes in trade policy,” he said.
Staff simulations showed that global growth in 2025 would be roughly 0.2 percentage point lower if the maximum tariff rates announced in April and July were implemented, the IMF said.
The IMF said the global economy was proving resilient for now, but uncertainty remained high and current economic activity suggested “distortions from trade, rather than underlying robustness”.
Gourinchas said the 2025 outlook had been helped by what he called “a tremendous amount” of front-loading as businesses tried to get ahead of the tariffs, but he warned that the stockpiling boost would not last.
“That is going to fade away,” he said, adding, “That’s going to be a drag on economic activity in the second half of the year and into 2026. There is going to be pay back for that front loading, and that’s one of the risks we face.”
Tariffs were expected to remain high, he said, pointing to signs that US consumer prices were starting to edge higher.
“The underlying tariff is much higher than it was back in January, February. If that stays … that will weigh on growth going forward, contributing to a really lackluster global performance.”
One unusual factor has been a depreciation of the dollar, not seen during previous trade tensions, Gourinchas said, noting that the lower dollar was adding to the tariff shock for other countries, while also helping ease financial conditions.
US growth was expected to reach 1.9 percent in 2025, up 0.1 percentage point from April’s outlook, edging up to 2 percent in 2026. A new US tax cut and spending law was expected to increase the US fiscal deficit by 1.5 percentage points, with tariff revenues offsetting that by about half, the IMF said.
It lifted its forecast for the euro area by 0.2 percentage point to 1 percent in 2025, and left the 2026 forecast unchanged at 1.2 percent. The IMF said the upward revision reflected a historically large surge in Irish pharmaceutical exports to the US; without it, the revision would have been half as big.
China’s outlook got a bigger upgrade of 0.8 percentage point, reflecting stronger-than-expected activity in the first half of the year, and the significant reduction in US-China tariffs after Washington and Beijing declared a temporary truce.
The IMF increased its forecast for Chinese growth in 2026 by 0.2 percentage point to 4.2 percent.
Overall, growth is expected to reach 4.1 percent in emerging markets and developing economies in 2025, edging lower to 4 percent in 2026, it said.
The IMF revised its forecast for world trade up by 0.9 percentage point to 2.6 percent, but cut its forecast for 2026 by 0.6 percentage point to 1.9 percent.
